WASHINGTON — Maryland plans to competitively sell $803 million of general obligation bonds on Wednesday, the state’s biggest transaction ever. Investors are expected to snap up the bonds even as large deals in other states were delayed last week amid rising municipal yields.
Maryland expects to issue new-money debt for projects ranging from schools to jails, and will issue refunding debt to capitalize on low interest rates. State Treasurer Nancy K. Kopp said she expects to save about $23 million with the refunding deal.
Maryland’s triple-A rating was reaffirmed by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.
The deal includes three series. The $141.8 million of Series A bonds will tax-exempt and mature between three and 12 years. The $58.2 million of Series B bonds have the option to price as tax-exempt debt or taxable Build America Bonds and will mature between 13 and 15 years.
The $603.4 million of Series C tax-exempt bonds will be issued as refunding bonds will mature between six and 14 years. The Series C bonds will refund previously issued GO debt. The state has issued GO bonds twice before in 2009.
Maryland’s constitution requires a rapid 15-year amortization of tax-supported debt. This “rapid” amortization has helped the state quickly replenish its debt capacity and helps limit its outstanding debt, according to Moody’s.
Maryland’s deal would be the second-largest state government GO sale in the Northeast this year, trailing only New York’s $1.1 billion sold earlier this month. Maryland’s second-largest deal was a $655 million refunding sold in March 2005.
Municipal yields eased off near record lows last week triggering two issuers to postpone deals. On Wednesday, Hawaii pulled out of a $655 million GO sale and the Houston Independent School District moved a $385 million deal to day-to-day, though neither was rated triple-A.
Maryland’s strength as a gilt-edged issuer may attract enough demand for the deal to go through, market participants said last week.
“Right now, credit is what customers want,” said Scott Dinn, a municipal bond trader for Bethesda-based Lafayette Investments Inc. Investors “want safety,” he said, adding that the size of the deal “might be a challenge” for Maryland, “but I think the credit is what will save them.”
The retreat in muni yields will help attract retail customers “who will definitely be interested” in the Maryland deal, Dinn said, noting that Maryland has not offered as much supply as other states.
“Safety is the No. 1 thing our retail clients are looking at,” he said.
Credit rating agencies applauded Maryland’s debt management and fiscal policy amid the economic recession.
Standard & Poor’s stable outlook for Maryland reflects its “economic strength and historically strong financial and debt management policies,” said lead analyst Richard Marino. He added that Maryland “has proactively responded to recent structural budget imbalance.”
Maryland, which has weathered the economic recession better than some states, has employed cost-cutting measures to cope with declining tax revenue. The state still faces a $230 million budget gap for fiscal 2010 after slashing $736 million from the budget in July and August.
The state’s Board of Public Works is expected to hear proposals for closing the gap next month, according to Moody’s.
The rating agencies “believe that Maryland’s government leaders are willing to make tough, prudent budgetary decisions in difficult times,” Kopp said in a statement.
The state expects to draw $210 million from its reserves in fiscal 2010. Still, Maryland’s rainy-day fund ended fiscal 2009 with $692 million, or 5% of revenues, Moody’s said.
As of June 30, Maryland had $8.7 billion of tax-supported debt outstanding and $2.3 billion of authorized but unissued debt. After the current sale, the state expects to issue twice more in fiscal 2010.
Maryland had a 7.2% unemployment rate in August compared with the 9.8% national rate in September.
Kutak Rock LLP will serve as bond counsel. Public Financial Management Inc. will serve as financial adviser.
